Common Financial Mistakes

Given below are some of the potholes on the road to financial security that we must learn to avoid.

Retirement is far away is it? My children will fend for me. Are you sure? Indian families are becoming more and more nuclear and children are so tangled with their own lives that this assumption is no longer a realistic one. Or we might think, my pension fund will be enough. The fact remains that most of us never plan to have enough retirement funds to maintain our existing lifestyles.

College education is cheap Think again. Foreign colleges continue to reduce their aids and grants and in the next few years Indian colleges will stop serving free lunches, that is, they will charge what it costs them to educate your child. To educate a doctor it costs a college over Rs 15 lakhs and to educate an engineer, it costs over 12 lakhs at current prices. That shouldn't make you lose your sleep, but then it's time you got up half an hour earlier on Sundays and started planning your monetary needs in the coming years.

Losing your Job It happens to people I know, you think. But me, I am too smart to lose a job and my company loves me. Unfortunately, it's not always about you. It's about the company's own economics. Tough times require tough measures and companies cut employees across the board when the going gets tough. Indian companies (and even the government) are shaping up and reducing their workforce. Don't take a lifetime employment (something our parents took for granted) as a given,

Emergencies No one expects to develop a serious illness. But if you do, do you have the medical insurance to cover it (check your insurance policy again). Or do you have three to six months' worth of monthly expenses in cash to cover an emergency?

Dealing with money without a plan Many of us leave money in investments for years (and can't even find the documents), many of which may have gone belly up. Or pay higher taxes because we scramble to pay up on the tax deadline. Or have not thought if we have enough funds to retire comfortably. Or if we have enough insurance coverage, besides other requirements.

Buying consumer goods and non productive assets on credit It's a double whammy. If we are using credit cards for anything other than convenience (of not having to carry a wad of notes), we are simply mortgaging our future earnings to paying off debt. Additionally, if we don't pay the entire balance on our credit card by the due date, we get charged interest from the date of purchase for all future purchases. And you get no tax deduction on the interest you pay for car or credit card interest payments. Given the interest rates you get charged on credit card and car loans, you will have to find an investment that produces over 20 24 per cent interest to match up the interest charges on these loans. Isn't it simpler just to live within your means?

Failing for high interest rates and upfront commissions Talk about losing your shirt for a free button. India is defying interest rates sent investors raiding their bank deposits to put money in schemes that ended up gobbling up even their original investment.

Letting feelings overrule financial logic Many investors I know who have lost money in stocks try to double their investments in these so that they can recover what they have lost with little regard to the fact that they could lose even this. Or for that matter, buying a son or daughter a car, or a diamond necklace for your wife that you cannot afford just because you don't wan't to annoy them. Spending what you cannot afford is like the high a drug addict gets when he takes drugs or an alcoholic feels when he drinks. The hangover is worse.

Leaving yourself financially exposed Certain events, such as a fire, could destroy us financially or at least put an unbearable load on our finances., Is your house and its belongings insured for fire, theft, earthquake, etc.? Do you have medical insurance to cover any major illnesses? Is your small business covered for thefts by employees? These are just some examples. Most of us have rarely sat down and analysed events that could destroy us financially and considered insurance to cover or minimize these risks.

Not taking responsibility for your investments Most people invest haphazardly on advice from trusted friends, relatives and others. People rush into an investment littered with investors who have lost their entire life's because 'It's a one time deal'. How many times have you savings in plantation companies, company fixed deposits, heard, 'Get in now or you will not be able to buy it,' nidhis and chit funds and just about every investment 'There at least a 100 people waiting to buy,' 'This is the you can think about because greed took over their last plot.' It's your money and trust me, it feels a lot common sense. The lure of a 1 2 per cent upfront better to have it than to lose it. Don't jump into making commission or a gift and a dubious promise of gravity¬investments even if you 'lose a deal'. It's not the end of the world. And chances are that if YOU rush into an offer you will lose money rather than make it.

Not having a will The only thing that is certain is death. The uncertain part is that you don't know when it will come. Passing away without a will could leave our loved ones in a financial soup.

Failing to save for retirement For the greater part of our lives, we look at the retirement years as someone else's life. Why is it that just because your employer thinks that you have reached the end of your productive life, you don't need to have a living standard similar to the one you had before retirement?

Financial ignorance You don't learn about managing your money through the educational system and even if you picked up your parents' good financial habits, they may not fit in your scenario. Our fathers love the good old bank deposit and would not put their money anywhere else. They grew up without a host of other exotic investment products like mutual funds and bonds of various types. That requires you to educate yourself and read up regularly on the financial choices available to you.

Financial illiteracy passes on for generations For some strange reason, discussions of money within the family are frowned upon. Financial ignorance passes on from generation to generation. Most families discuss money only when there are disagreements or disputes on who gets what, a death that leaves siblings fighting for their share or a financial crisis. But all you are doing is pushing things under the rug and at least in my experience it all ends up in squabbles and fights on who owns what. The world is getting very competitive and your kids need to be educated about personal finance. You will be passing on to your children tools they will be able to use to build a long term financial base. The question is, when and what do you tell your children about money? When they are around fourteen or so, take them to a bank and let them open an account. And then whenever you give them their pocket money, deposit it in their bank account. That way, they get to track what they have.

Believing everything we read At the end of the day, most publications rely on advertising revenues and some of their advice on financial products could be biased. I am not saying that you should not believe what you read, but take it with a pinch of salt. Don't rush to buy a share just because a financial daily recommended it, If you need proof of what I am saying, just go back and see what the financial press was recommending and what has happened to those 'best buys'.

Another note of caution. A market expert who appears to be dishing out his recommendations on every TV channel and newspaper is not necessarily the best source of information. The expert may just have the best public relations team which manages to get him on every media source.

For those of you who read or watch financial news, numerous pieces of investment advice, often conflicting, pass by your eyes. Many tell you about how the stock market or the real estate market is bottoming out and how it is the best time to buy. But wait a minute they don't tell you if it's the best thing for you to do since they don't know your personal situation. If you look hard enough, the best and safest investments are usually bought after careful research and perform well when you hold them for long periods of time.